Yen slips amid intervention fears

The Australian dollar recovered slightly against the yen today after the Bank of Japan pumped a record $182 billion into money markets.

14 March 2011Gareth Hutchens

The Australian dollar recovered slightly against the yen today as markets worry that Japanese officials will intervene to weaken the currency in the wake of Friday's devastating earthquake and tsunami.

The yen had initially gained on expectations of repatriation flows, but then lost steam after the Bank of Japan offered to inject a record $182 billion into the banking system and on speculation it may ease its ultra-loose monetary policy further to calm markets.

That saw the Australian dollar recover this afternoon to 82.67 yen, from a six-week low against the yen this morning, trading at 81.47 yen.

In a statement released on its website the Bank of Japan said it would do its ?utmost? to provide market liquidity and ensure the stability of financial markets. It also said it would continue to monitor the situation and ?stand ready to respond and act as necessary?.

Nomura chief economist Stephen Roberts said the dollar lost ground on Friday evening immediately after the earthquake because traders assumed the yen would be driven higher by the Japanese government?s repatriation of funds from overseas investments to help pay for the emergency.

He said that sentiment faded during today?s trade, allowing the dollar to strengthen, but there was still a view some repatriation could occur.

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He also said there was concern that Japan?s Ministry of Finance could move to keep the yen from strengthening too far in a bid to keep its exporters competitive.

The Bank of Japan said earlier today that it would cut short its two-day policy board meeting, previously scheduled for today and tomorrow, in a sign that it could quickly implement extraordinary measures.

Sean Callow, the chief currency strategist at Westpac, said Bank of Japan officials would use the meeting to consider whether to increase the size of their asset purchase program, which was announced in October 2010, from 5 trillion yen to 7 trillion yen.

He said the emergency liquidity supply would pump even more money into their banking system via the purchasing of more government bonds, treasury bills, corporate bonds, exchange traded funds, and real estate investment trusts.